The National Association of Pension Funds (NAPF) and other industry bodies have asked the Government to change the definition of “Qualifying Earnings” in the Pensions Bill. The current definition of “Qualifying Earnings” states that all employees’ pay between £5,035 and £33,540 should be subject to pension contributions from 2012. The concern is that the definition of pensionable pay in employer schemes is different, based usually on basic pay or basic pay plus certain agreed amounts. Research by NAPF has shown that 83 per cent of FTSE-100 companies use total basic earnings as the basis for contributions.

The concern from NAPF and other industry bodies is that employers could be forced to change the definition of pensionable pay in their schemes to match the “Qualifying Earnings” definition set out in the Pensions Bill to the detriment of employees. If this occurs, the first £5,035 of earnings will be disregarded and contributions will be based on a reduced salary level. NAPF also estimates that there would be one-off costs to employers of making these changes of between £25,000-£100,000 per scheme.

Instead, NAPF and other industry bodies want the definition of “Qualifying Earnings” for pensions that have already been set up (or are close to being set up) to be allowed to remain as it is. However, it is accepted that Personal Accounts could use the definition as set out in the Pensions Bill.